Economic freedom and environmental performance : the impact of government size, legal system, and monetary stability on greenhouse gas emissions

Abstract

This study aims to analyze the relationship between economic freedom and environmental performance specifically measured by per capita GHG emissions from 2010-2020 for OECD countries as well as non-OECD countries using fixed effects panel data regression. The results show that in OECD countries smaller government size has a significant and positive effect on GHG emissions, while in non-OECD countries, although there is a positive effect, it is not statistically significant. The legal system and property rights have a significant and negative effect in OECD countries, but in non-OECD countries, the impact is negative but lacks statistical significance. Additionally, the higher sound money in OECD countries is associated with a negative effect on GHG emissions, whereas in non-OECD countries, it has a positive effect and not significant. The EKC hypothesis is confirmed and significant in OECD countries indicating the existence of an inverted u-shaped link between GDP per capita and GHG emissions, while in non-OECD countries only the relationship is detected but not significant. Technological advancement is equally significant in increasing emissions in both OECD and non-OECD countries, as well as the influence of urbanization is equally influential in reducing emissions in both OECD and non-OECD countries. As for trade, while it has a positive effect in the nonOECD, it has a negative effect in the OECD. This research provides policy implications related to the role of government in mitigating the adverse impact of climate change and improving environmental performance through reducing emissions, one of which is through subsidy and tax regulations as well as strengthening the legal system and maintaining economic stability without sacrificing the environment in the observed countries.